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Target-Date Funds in 401(k) Retirement Plans

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  • Olivia S. Mitchell
  • Stephen Utkus

Abstract

Individual responsibility for portfolio construction is a central theme for defined contribution pensions, yet the rise of target-date funds is shifting investment decisions from workers back to employers. A complex choice architecture including automatic enrollment, reenrollment, and fund mapping, is increasing the number of participants defaulting into employer-selected target-date funds. At the same time, portfolios of non-defaulted participants undergo sizeable changes, with equity share ratios widening by over 40 percent points between younger/older participants. Among active decision-makers, these funds act as a form of implicit employer-provided lifecycle investment advice. More broadly, our findings highlight malleable preferences among retirement investors and a demand for default-based guidance or simplified advice for households facing complex choices.

Suggested Citation

  • Olivia S. Mitchell & Stephen Utkus, 2012. "Target-Date Funds in 401(k) Retirement Plans," NBER Working Papers 17911, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:17911
    Note: AG LS PE
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    References listed on IDEAS

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    1. Choi, James J. & Laibson, David & Madrian, Brigitte C., 2004. "Plan Design and 401(K) Savings Outcomes," National Tax Journal, National Tax Association;National Tax Journal, vol. 57(2), pages 275-298, June.
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    Cited by:

    1. Mitchell, O.S. & Piggott, J., 2016. "Workplace-Linked Pensions for an Aging Demographic," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 865-904, Elsevier.
    2. James M. Poterba, 2014. "Retirement Security in an Aging Society," NBER Working Papers 19930, National Bureau of Economic Research, Inc.
    3. Mao, Mike Qinghao & Wong, Ching Hin, 2022. "Managerial commitment and heterogeneity in target-date funds," Journal of Empirical Finance, Elsevier, vol. 68(C), pages 1-19.
    4. Chalmers, John & Reuter, Jonathan, 2020. "Is conflicted investment advice better than no advice?," Journal of Financial Economics, Elsevier, vol. 138(2), pages 366-387.
    5. Wei-Yin Hu & Olivia S. Mitchell & Cynthia Pagliaro & Stephen P. Utkus, 2013. "Evaluating Web-based Savings Interventions: A Preliminary Assessment," Working Papers wp299, University of Michigan, Michigan Retirement Research Center.
    6. Annamaria Lusardi & Olivia S. Mitchell, 2014. "The Economic Importance of Financial Literacy: Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 5-44, March.
    7. Dimmock, Stephen G. & Kouwenberg, Roy & Mitchell, Olivia S. & Peijnenburg, Kim, 2016. "Ambiguity aversion and household portfolio choice puzzles: Empirical evidence," Journal of Financial Economics, Elsevier, vol. 119(3), pages 559-577.

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    More about this item

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G2 - Financial Economics - - Financial Institutions and Services
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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